Canadian Consumers Harmed by Artificial Telecommunications Competition, Paper Argues

To the detriment of consumers across the country, the federal government has been encouraging artificial competition in the telecommunications industry for the past seven years, argues a new research paper.

Published today by the Montreal Economic Institute, the paper argues that, fixated on the goal of promoting the emergence of a fourth wireless carrier in each of Canada’s regional markets, the government has lost sight of the ultimate goal of promoting the development of a dynamic, efficient industry.

“Contrary to popular belief, with three national wireless players, and several regional ones, Canada is far from being an aberration among developed countries,” says Martin Masse, co-author of the study. “As Europe’s experience shows, high levels of government regulation and competition may bring down prices, but they also discourage investment and innovation.”

Between 2007 and 2012, wireless capital expenditures grew by 51% in the U.S. and by 35% in Canada, whereas they fell by 4% in the European Union. Europe is now lagging in the deployment of the latest wireless technologies: 14% of mobile users in Canada are connected to the fastest network (LTE, or 4G) compared to less than 4% in the United Kingdom and less than 2% in Germany, France and Italy.

“Well-established regional players that benefited from preferential treatment in the 2008 auction very likely did not need the subsidy,” points out Paul Beaudry, another author of the study. “And as for the new entrants that likely would not have entered the market without the subsidy—Public Mobile, Mobilicity and Wind Mobile—they have not fared well.”

“The government changing the rules in order to prevent Telus from acquiring Mobilicity is very worrisome, not only for the telecommunications industry but for the economy in general,” adds Michel Kelly-Gagnon, President and CEO of the MEI. “It sets a dangerous precedent of state intervention into economic matters that will harm the development of dynamic industries, and the consumers they serve.”

Ultimately, the paper proposes “the liberalization of Canada’s foreign investment regime in the telecommunications sector and of its spectrum licence transfer rules.”